Wealth Management Crisis at UBS (A) case study focuses on the crisis being faced by UBS when an investigation for tax fraud was launched by the U.S. Department of Justice. The investigation was rooted in the claim that UBS had a hand in depriving the US Treasury of imposing taxes on residents who hid billions of dollars in secret Swiss accounts.
Paul M. Healy, George Serafeim, David Lane
Harvard Business Review (111082-PDF-ENG)
March 04, 2011
Case questions answered:
- In your opinion, to what extent did the government and national culture play in these two scandals? Do there appear to be similarities between the UBS scandal and the Barclays LIBOR scandal in the “third” phase that Mr. Dimond wanted to be acknowledged?
- To what extent did corporate culture contribute to these scandals?
- Without the Global Financial Crisis, do you think both of these instances would have been reasonably uncovered, or would they have lingered?
- With respect to both UBS and Barclays, to what extent do you feel personal and corporate ethics may have been impacted by the “everyone else is doing it so I can too” mentality?
- Does there appear to be a difference in the source of the ethical issues documented in these cases (from the CEO down versus the Traders up)? Does it make a difference?
- Does it matter who or what entities could have been impacted by these scandals? What if net/net there were no losses incurred?
- In your opinion, is the next scandal already underway, and are we just waiting for the next recession to find out what is currently going on?
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Wealth Management Crisis at UBS (A) Case Answers
1. In your opinion, to what extent did the government and national culture play in these two scandals? Do there appear to be similarities between the UBS scandal and the Barclays LIBOR scandal in the “third” phase that Mr. Dimond wanted to be acknowledged?
Government and national culture played a role in the wealth management crisis at UBS and LIBOR but to varying degrees. In the UBS scandal, the Swiss government supported secrecy between banking institutions and their clients.
“Privacy and freedom from government intervention were central tenets of 19th-century liberalism that had influenced Switzerland.” (Harvard Business School, p.2)
The concept was reinforced by the Swiss government when “the practice was first codified in Article 47 of the 1934 Federal Law on Banking and Savings Banks, which imposed fines of up to CHF 20,000 and imprisonment of up to six months for any banker, auditor, or regulator who intentionally disclosed account holder data.” (Harvard Business School, p.2)
As a result, the Swiss surreptitious style became part of their identity and national culture. Both the Swiss government and bankers did not focus on the intentions behind the secrecy and whether or not they were criminal in nature.
In the LIBOR scandal, one could consider the British government to have abetted the Bank of England as well as Barclays and embraced the notion that the LIBOR was too complicated to be able to determine if rates were rigged.
Lord Turner, former chairman of Britain’s Financial Services Authority, who was responsible for the regulation of financial services in the UK, said it would be challenging to determine if traders benefited from rigging the LIBOR.
Moreover, Bob Diamond, former CEO of Barclays, a bank that regularly submitted rates, claimed that he “didn’t even know the mechanics of how LIBOR was set.” This is surprising given that the LIBOR was developed in London and is the benchmark for lending among major global banks.
During the financial crisis, abetting and ignorance were the underlying themes of the British government and its banking system to maintain “an image of strength and solvency.” (Stanford, p.1).
There appear to be similarities in the “third” phase of the scandals.
In the UBS scandal, Raoul Weil, deputy CEO of Global Wealth Management, was under the direction of Marcel Rohner, CEO of Wealth Management, when he altered UBS’s compensation approach for US cross-border private bankers and lured US clients into harboring their wealth at UBS.
Upon investigation, UBS claims that the treaty signed by the US and Swiss governments bound the US to Swiss laws, where the Swiss government actively protects the “privacy and freedom from government intervention,” ultimately implying that the responsibility lay with the Swiss government and that they were abiding by the rules.
After all, the Swiss banking sector was responsible for twice the amount of GDP than that of the US and employed roughly 100K people.
In the LIBOR scandal, Bob Diamond believed he was following the instructions of his superior, Paul Tucker, deputy governor of the Bank of England, the United Kingdom’s central bank, and that “government officials were at least partially responsible” for the decision to manipulate the LIBOR. (Stanford, p. 9)
2. To what extent did corporate culture contribute to these scandals?
The corporate culture of Barclays and UBS helped contribute to these scandals. However, the underlying lack of LIBOR regulation and the government regulation in Switzerland helped manifest these cultures.
Barclays’ corporate culture within its investment banking division had placed a strong emphasis on delivering results loyalty, and not delivering bad news. This snowballed into an environment where leaders were rarely questioned.
Leading employees to do whatever was necessary to achieve results. This was further strengthened by HR’s lack of intervention regarding malpractice, leaving employees to fend for themselves.
The lack of regulation regarding the LIBOR rate is…
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